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Executive Summary

Low Rates for a Long Time

Ben Bernanke's Fed is in no hurry to take the U.S. economy completely off life support, with recession-fearing doves still having the upper hand over inflation-fearing hawks. But the rate-setting Federal Open Market Committee did take a small step forward in its gradual exit strategy on Sept. 23, saying it will shrink its weekly purchases of mortgage-backed securities and mortgage agency debt, taking longer to amass its target total of $1.45 trillion. Those purchases are keeping a lid on mortgage rates. The FOMC voted unanimously to maintain its benchmark rate at zero to 0.25% and affirmed that "economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period."

The G-20 Agenda

As befits a scary financial crisis, the leaders of 20 of the world's biggest economies have spent lots of time together lately—the Pittsburgh summit scheduled for Sept. 24-25 is their third meeting in less than a year. But despite a packed agenda, analysts and officials were busy at press time downplaying expectations of any dramatic policy pronouncements. There's general agreement that banks should be required to keep bigger capital reserves, but Europe and the U.S. apparently remain at loggerheads on the specifics. There may be better prospects for an accord on reining in executive pay. Other topics of discussion: rebalancing global consumption and winding down stimulus programs.

Fracas Over the Web

Net neutrality: Behind that bland phrase lies a bitter battle. On Sept. 21, FCC Chairman Julius Genachowski proposed rules under which Internet service providers would be prohibited from blocking any users or applications and would have to reveal how they are managing their networks. The fight pits cable and telecom giants such as Comcast (CMCSA) and Verizon against heavy Net users such as Google (GOOG) and Skype (EBAY). Genachowski set the stage for another spat by insisting the rules should extend to "all platforms that access the Internet," including wireless carriers. Top AT&T (T) lobbyist James Cicconi says the company will resist any bid to boost regulation of wireless in the "absence of any compelling evidence of problems or abuse." The new regs will be formally proposed at an October meeting, where they're expected to prevail in a 3-2 vote.

FCC Stirs Old Debate on 'Net Neutrality'"

Dell's Big Buy

Ross Perot's Presidential ambitions may have fizzled, but in techland they still love his companies. Dell (DELL) on Sept. 21 said it aims to buy computer service provider Perot Systems (PER) for $3.9 billion in cash, which amounts to a stiff 68% premium. Dell's move to expand its lucrative business of managing corporate networks comes just 16 months after rival Hewlett-Packard (HPQ) bought another former Perot services company, EDS (HPQ). Investors questioned whether Dell is paying too much, but the PC maker figures it can cash in partly by delivering services to hospitals looking to digitize health records.

High Rollers in Macau

The Chinese enclave of Macau has a hot hand again. Casino revenues leapt 17%, to a record $1.4 billion, in August as a big gaming palace opened and the Chinese government eased travel restrictions. As a result, casino operators are rushing to shore up balance sheets. Melco Crown Entertainment, controlled by Macau gambling scion Lawrence Ho, raised $200 million in a stock offering in August. Ho opened the $2.4 billion City of Dreams resort in June. Vegas mogul Steve Wynn aims to garner $1.6 billion in October by offloading a 25% stake in his Macau operations. But the biggest winner may be his Vegas rival Sheldon Adelson, who propped up his Las Vegas Sands last year by pumping in $1 billion of his own cash. Sands shares have shot from 1.40 to 19 in six months, and Adelson plans to offer shares in Sands' Macau subsidiary.

Banks Do an About-Face

It must have seemed like a great idea earlier this year when banks were deep in the soup: Charge largely unsuspecting customers steep fees when they overdraw their accounts using a debit card. But the move proved a public-relations catastrophe, and on Sept. 22 and Sept. 23, respectively, JPMorgan Chase (JPM) and Bank of America (BAC) said they were changing course. They will eliminate fees for small overdrafts, cut the number of fees a customer can be hit with on any given day, and allow customers to opt out of overdraft protection. The new policies will be fully in place by sometime during the first quarter of 2010. They mirror changes already mandated for credit cards under the Credit Card Act of 2009.

Luxury Heads Online

After years of giving the Web a cold shoulder, luxury brands are embracing e-commerce and social media—though more out of necessity than conviction. A year ago only 33% of upscale brands were flogging their wares on the Web; now 66% are. But when it comes to strutting their stuff, most purveyors of luxe are as wobbly as a runway model on six-inch spikes, according to a new report from Scott Galloway, a marketing professor at NYU's Stern School of Business. Galloway rated brands on their "digital IQ" and found that makers of consumer electronics, such as Apple (AAPL), and carmakers, such as BMW, exhibit the most savvy. On the other end of the scale, cosmetics, hotels, and cruise lines figured prominently as brands that are committing too little resources to building a Web presence.

Intel vs. EC, Round XIV

Message from Neelie Kroes to Intel (INTC): Be careful what you wish for. On Sept. 21, Europe's competition commissioner released documents detailing e-mail exchanges from PC makers and Intel employees that suggest the chip behemoth strong-armed manufacturers into shunning chips from rival Advanced Micro Devices (AMD). The release comes as Intel is challenging a record $1.45 billion antitrust fine the EC leveled in May. Intel says European regulators set out from the start to find Intel guilty with little evidence to back up their conclusion. CEO Paul Otellini called publication of the e-mails "salacious" and inflammatory and insists regulators are withholding evidence that will prove Intel innocent. The company is under court order not to release documents it says would aid its defense.

Who Knew at Deutsche?

Deutsche Bank (DB) weathered the financial crisis better than many peers, but now its reputation is taking a drubbing from an expanding scandal. The Wall Street Journal reported on Sept. 22 that Supervisory Board Chairman Clemens Börsig knew more than the bank has acknowledged about using private detectives to snoop on a critical shareholder. Börsig was briefed on the operation, though it's unclear whether he O.K.'d it, the Journal said, citing an internal report commissioned by Deutsche from law firm Cleary Gottlieb Steen & Hamilton. A spokesman said the bank stands by statements that top brass did not authorize any questionable activities.

Betting on AIG

Shares of the stricken insurer, in hock to the feds to the tune of $183 billion, surged 23% on Sept. 21. Reason: news that Washington may yet again ease the terms of the monster bailout, largely because the company is in no position to make the payments soon coming due. It would be the fourth revision to the deal struck last September, when AIG (AIG) nearly went bankrupt. A Government Accountability Office report released on Sept. 21 said that the company's financial situation had stabilized but that it may never be able to repay the taxpayers.

A Departure at Pepsi

CEO Indra Nooyi is losing the executive she once described as her "closest partner," Vice-Chairman Michael White, 57. PepsiCo (PEP) said on Sept. 19 that he'll leave the company by yearend. White, a rival to Nooyi when she got the top job in 2006, has been running the food and soda giant's international unit, which under his aegis has ballooned to a nearly $20 billion business. He also led Pepsi's negotiators in its recently announced $7.8 billion deal to buy two of its largest bottlers.

The Joys and Perils of 'Reverse Innovation'

More global companies, from General Electric (GE) to Procter & Gamble (PG), are adopting the strategy of "reverse innovation"—that is, turning products created for emerging markets into low-cost goods for developed-world customers. They're running into thorny management challenges. The new approach, also known as "trickle-up innovation," can require taking apart entire organizational structures—a difficult exercise that risks alienating established managers.

In an article in the October issue of the Harvard Business Review, GE CEO Jeffrey Immelt and Tuck School of Business professors Vijay Govindarajan and Chris Trimble lay out the lessons GE has learned from its trickle-up tactics, first deployed in the early 2000s when the company began turning away from the popular "glocalization" model of taking products for the U.S. and tweaking them for customers in developing countries. The authors suggest creating local teams that operate like independent new businesses but report to senior executives at headquarters to ensure top-level support.

GE, for one, has reaped rewards from such a strategy. Its six-year-old worldwide portable ultrasound business, stemming from products originally designed in and for China, saw growth of 50% to 60% a year before the recession. GE's overall Chinese revenue is on track to grow 25% this year, even in the downturn. The authors attribute these impressive numbers not only to the reverse innovation concept but also to a new management system that encourages it.

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